Baucus proposes overhaul for clean-energy tax breaks

Senate Finance Chairman Max Baucus on Wednesday proposed consolidating or wiping out scores of tax breaks the government offers to promote clean energy and efficiency — a radical makeover that would offer incentives for natural gas, nuclear power and other low-carbon sources while junking other benefits popular with consumers.

Baucus’s draft calls for simplifying and extending a convoluted patchwork of incentives while slashing their roughly $150 billion price tag over the next decade by more than half. In their place, his plan would create two broader clean-electricity and fuel incentives that would be based on greenhouse gas levels, as determined by the EPA.

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Baucus would use the savings to help finance a cut in the top corporate rate of 35 percent. The plan does not include a tax on carbon emissions, although it asks for comment on the validity of such a proposal.

The clear winners in his plan would be electricity and fuel sources with low or zero greenhouse gas emissions, including new nuclear reactors. Plants that burn natural gas would gain an edge over coal. But individuals and businesses wanting tax breaks for making buildings, homes and appliances more energy efficient would lose those incentives, as would consumers of plug-in electric vehicles and fuel cell vehicles.

Many of the tax breaks Baucus’s plan targets are already set to expire Dec. 31. The plan would extend some of those credits, such as the one for wind power, while letting others fade away.

“It is time to bring our energy tax policy into the 21st century,” Baucus (D-Mont.) said in a statement. “Our current set of energy tax incentives is overly complex and picks winners and losers with no clear policy rationale. We need a system of energy incentives that is more predictable, rational and technology-neutral to increase our energy security and ensure a clean and healthy environment.”

His proposal is unlikely to go anywhere anytime soon. The push for tax reform has stalled in Congress, and his latest proposal would gut scores of incentives with broad bipartisan support among his colleagues. But it’s intended to jog the tax-reform debate.

Some energy industry groups quickly issued statements welcoming Baucus’s proposal but saying the final details will be crucial. And one group, the Advanced Ethanol Council, urged Congress to immediately extend the biofuels industry’s soon-to-expire tax breaks while lawmakers wrangle about the long-term policies.

“It is very clear that Chairman Baucus sees the big picture when it comes to tax reform,” council Executive Director Brooke Coleman said in a statement. But in the short term, he added, “Tax provisions for cellulosic biofuels still come off the books in two weeks while those offered to the fossil fuel industry persist.”

A major solar energy lobbying group expressed worries that Baucus’s proposal could hobble the industry’s future.

“While we appreciate efforts by Chairman Baucus to make the convoluted U.S. tax code simpler and fairer for everyone, we’re very concerned that reducing the solar Investment Tax Credit (ITC) and dramatically altering the way companies depreciate their assets could jeopardize future clean energy development in the United States,” said a statement from Rhone Resch, CEO of the Solar Energy Industries Association.

At issue in Wednesday’s proposal are the roughly $16.4 billion in tax incentives that the tax code now offers to wind, geothermal, nuclear and other energy producers, as well to individuals investing in green technology.

In Baucus’s plan, clean electricity incentives are divided into a new production tax credit of up to 2.3 cents per kilowatt hour or a new investment tax credit of up to 20 percent. “The cleaner the facility, the larger the credit,” a summary of the staff discussion draft says.

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CORRECTION: Corrected by: Libby Isenstein @ 12/18/2013 03:33 PM
Correction: A previous version of this story included incorrect information provided by the Senate Finance Committee on the amount of a new production tax credit that Chairman Max Baucus is proposing. The credit would be as much as 2.3 cents per kilowatt hour.